Analysts ‘neutral’ on Eversendai steel contracts
Research houses maintain stock at ‘underperform’ and ‘sell’
PETALING JAYA: Analysts are “neutral” on Eversendai Corp Bhd’s two new steel structure contracts as the jobs are within the company’s estimated financial year 2018 (FY18) replenishment target.
Kenanga Research said the new contracts, worth RM272mil in Dubai, accounted for 15% of Eversendai’s RM1.8bil replenishment target.
The research firm noted that Eversendai’s outstanding order book stood at about RM2.5bil, which provides visibility for the next one to 1½ years. However, delays in the delivery of two lift boats may pose risks to the company’s earnings.
“Eversendai’s first lift boat, initially scheduled for delivery for in the third quarter of 2017 has been delayed to the first quarter of 2018 as certification and commissioning of the lift boat is more stringent than expected.
“Meanwhile, we note that the delivery of the second lift boat, which is at about 55%60% completion, and scheduled for delivery by the first half of 2018, may be delayed to a later date given the longer than expected duration for certification as well.”
The research house has maintained its “underperform” call on the counter with a lower target price of 74 sen.
Affin Hwang Research said the client, Vahana Holdings, has secured conditional financing for the first lift boat but failure to secure financing for the second boat could raise the risk of impairments.
“We highlight there is also a risk of impairment in FY19 for the first lift boat should Vahana fail to secure a charter within 12 months once the first lift boat is ready for delivery in the first quarter of 2018.
“However, we opine that 12 months are relatively sufficient to secure a charter but will monitor the situation closely and review when necessary,” it said.
According to TA Research, assuming a net margin of 5%, these projects are expected to contribute RM13.6mil of net profit or earnings per share of 1.7 sen throughout the construction period.
The structural steel works for One Za’abeel mixed-use development and the Address Tower Residence IL Primo luxury high-end residential tower in the business district of Dubai are expected to be completed in 2020.
“We adjust our FY18 and FY19 earnings forecasts lower by 5.2% and 5.5% respectively, after adjusting the total job wins in 2017 from the RM2bil assumed previously to RM1.6bil, which fell short of the company’s target of RM2bil.
“We raise our FY18 and FY19 order book replenishment assumptions from RM1.5bil to RM1.6bil, in view of increasing oil price, which we think could improve the economic condition in the Middle East region, which is Eversendai’s main target market,” said TA Research.
The research firm has maintained its “sell” call on the stock, with a lower target price of 55 sen, based on six times (x) CY18 earnings.
This is after applying a two times price earnings (PE) multiple discount to our target PE multiple of eight times.
The discount is in view of its sizeable receivables at RM1.63bil together with relatively high net gearing level of about one time as at the end of September 2017, TA noted.
Shares of Eversendai fell two sen to 83.5 sen yesterday.